G20 summit: Improving global confidence and support the global recovery – Joint letter of the Presidents of the European Commission and the European Council

In a joint letter to the 28 EU Heads of State and Government European Commission President José Manuel Barroso and European Council President Herman Van Rompuy inform about the key issues coming up for discussions at the G20 summit in Saint Petersburg on 5-6 September 2013.

They call on fellow G20 leaders to unite around a common purpose to improve global confidence and remain vigilant and proactive to support the global recovery and find the way to strong, balanced, sustainable and inclusive growth.

On the main priorities of the summit they stress that: 1) growth and employment need to be at the top of the G20 agenda; 2) financial reform needs to be completed; 3) the work on tax avoidance and evasion need to be pushed forward and 4) the reform of the International Financial Architecture needs to be completed and progress be made with the work on development, anti-corruption and Energy.

They underline EU action in these fields and set out their views on what the G20 should do to make progress in all of these areas.

The European Commission President and the European Council President represent the European Union in the G20 leaders' process established in 2008 after a joint EU-US initiative. The European Union is a full member of the G20.

Text of the letter:

Dear Colleagues,

We would like to inform you about the key issues coming up for discussion at the G20 summit in Saint Petersburg on 5-6 September.

Five years have passed since the start of the global crisis and three since its most visible impacts in Europe. We have made important headway since the last G20 summit in Los Cabos but we need to do more. Due to the decisive policy action undertaken, financial market conditions have improved, and tail risks for the Euro area have receded. But we need to remain vigilant and proactive to support the recovery and find our way to strong, balanced, sustainable and inclusive growth. G20 Leaders in Saint Petersburg should send a positive message to improve global confidence and support the global recovery. We therefore need to show unity around a common purpose, and demonstrate that global institutions, and in particular the G20, are delivering.

In Saint Petersburg, the EU should aim for results in the following priority areas:

1. Growth and employment needs to be at the top of the G20 agenda

Global growth and employment remain weak and should therefore be our primary concern at the Saint Petersburg summit. Leaders should adopt a strong "Saint Petersburg Action Plan", with a focused package of balanced growth and sustainability enhancing measures. Europe's contribution to this action plan could in particular build on our four point strategy: (i) measures to end financial fragmentation and ensure financial stability, including balance sheet assessment and clean up of the banking system, (ii) structural reforms and differentiated fiscal consolidation to restore competitiveness and debt sustainability, (iii) immediate initiatives to promote economic growth, notably the Compact for Growth and Jobs and the Youth Employment Initiative, and (iv) measures to strengthen the architecture of Economic and Monetary Union, in particular through the rapid completion of the banking union through the set-up of the Single Resolution Mechanism, and continued further progress on the other three pillars of the EMU roadmap.

The fight against unemployment, particularly long-term and youth unemployment remains critical for the European and international agenda. We therefore welcome the focus of the Russian Presidency on job creation, labour activation of vulnerable groups and youth employment and the commitments on these matters taken by G20 Labour Ministers at their meeting in July. We should highlight that the EU is tackling the pressing challenge of youth unemployment with a comprehensive approach building on a Youth Employment Initiative now scaled up to €8 billion and a speedy implementation of the "Youth Guarantee".

It is also important for the G20 to fulfil the commitment made in Los Cabos to identify credible and ambitious country-specific fiscal consolidation strategies beyond 2016. We should support the idea that G20 advanced economies commit to put government debt on a sustainable path so as to provide continuity to the Toronto fiscal commitments undertaken in 2010. In this regard, the US and Japan should continue to implement or put in place credible medium-term fiscal consolidation plans.

But fiscal policy alone is not enough. G20 economies also need to continue developing and implementing far reaching structural reform agendas in order to boost competitiveness and accelerate changes in existing growth models where necessary. All G20 economies need to promote policies leading to a rebalancing of the global economy and do their part to build a sustainable global recovery. In this regard, large surplus economies should consider taking further steps to boost domestic sources of growth and deficit countries should raise external competitiveness.

Long-term investment is a critical source of future growth in terms of enhancing the productive capacity of our economies. Getting the long-term financing process right is central to increase growth and potential growth. The EU shares the importance of these issues and the June European Council discussed ways to boost investment and improve access to credit. It launched a new "Investment Plan" to support small and medium sized enterprises (SME's) and boost the financing of the economy mobilising all the European resources including those of the European Investment Bank. In addition, the European Commission has also proposed a new legal framework to promote take-up of long term investment funds and it will support high-quality and transparent securitisation instruments for SME loans.

Trade must be a central part of our growth agenda with a threefold message: firstly, as trade is a source of growth and jobs we should promote it where we can - bilaterally, regionally and at the global level, while making sure that our bilateral and regional agenda complements the multilateral trading system. Secondly, the G20 should send a strong message against protectionism calling for a more effective implementation of the Toronto pledge and extending it beyond 2014. Thirdly, a successful deal with trade facilitation at its core at the WTO Ministerial meeting in Bali in December must be our key preoccupation for advancing the multilateral agenda. The G20 should give a strong political signal to negotiators to reach an agreement. Finally, we also welcome the attention given to improving transparency of Regional Trade Agreements and further analysing the increasing integration of global supply chains.

The EU has a good story to tell on all three priorities: we pursue a uniquely ambitious bilateral and regional agenda tackling the whole range of obstacles to trade and investment, including behind the border barriers; we are fully committed to the fight against trade protectionism and to extending the Toronto pledge and giving it more teeth; and the EU is ready to work with its WTO partners towards a balanced Bali package.

2. Completing financial regulatory reform

We have made steady progress in implementing our comprehensive reform agenda in the G20. We will reiterate that the EU is delivering on time and on all fronts and is well on track to have all the main financial reforms in place by the beginning of 2014. But the G20 needs to develop a clearer narrative to set out what has been achieved so far and what is left to be done.

Above all, a renewed commitment to timely and effective implementation is needed from all G20 partners. In particular, a key focus must be the implementation of the Basel framework across the G20 in order to build a resilient banking sector.

Also important is the need to focus on systemic risk, wherever it originates in the financial system. The G20’s work on addressing “too-big-to-fail” problems is especially relevant here. The G20 should focus in particular on developing effective resolution frameworks and other measures for global systemically-important financial institutions. Progress should also be made on the other policy strands, covering key issues such as: completing implementation of the agreed compensation practices; strengthening the oversight and regulation of the shadow banking sector; making progress in applying a global system of clear and unique identification of companies participating in global financial markets; further reducing excessive reliance on credit rating agencies; and ensuring the convergence of international accounting standards.

Finally, this work also needs to go hand in hand with more cooperation to address outstanding cross-border inconsistencies, especially in the area of Over-The-Counter (OTC) derivatives markets. The EU and the US have recently made major progress in this field, announcing significant agreements on how to approach the application of cross-border rules. Other G20 members should be encouraged to join this approach.

3. Push forward the work on tax avoidance and evasion

Taxation matters, namely the fight against tax avoidance and evasion, are very high on the global agenda. The conclusions of the European Council on 22 May have shown the importance of this discussion at EU level. The G8 Summit in Lough Erne further added momentum to moving forward our ambitious agenda globally.

On automatic exchange of information, the EU has considerable experience and expertise to contribute and we are further strengthening our own systems. On 12 June the European Commission proposed legislation to further extend the EU exchange of information system to cover the complete range of relevant income and account balances from the start of 2015. We fully support to the OECD's work on developing a multilateral standard of automatic exchange of information that should build on existing automatic exchange systems in order to maximise efficiency and we will bring our own experience into this process.

We also fully support the OECD’s action plan on base erosion and profit shifting (BEPS). This plan identifies actions needed for countries to prevent base erosion and profit shifting which is the right approach to curbing corporate tax avoidance worldwide. It fully supports our common objective to ensure that everyone pays their fair share of tax – whether large multinational or small corner shop – and that taxation reflects where economic activity takes place. The BEPS Action Plan complements the measures put forward by the European Commission to tackle aggressive tax planning in the EU, which European leaders endorsed in May. We in particularly welcome the commitment to examine ways to overcome the tax challenges of the digital economy. We should ensure consistency and co-ordination between EU and OECD efforts and develop internationally agreed standards for the prevention of BEPS in a constantly changing environment.

Our financial systems are also exposed to significant money laundering and terrorist financing risks. The G8/G20/OECD and EU efforts in these areas are mutually reinforcing. We are making progress on revising and enhancing the EU framework for combatting these phenomena, consistent with the Financial Action Task Force (FATF) standards. We will urge the G20 to remain committed to ensuring that non-cooperative jurisdictions adhere to those standards in the areas of tax, anti-money laundering/combating the financing of terrorism, and prudential standards.

4. Completing the reform of the International Financial Architecture and progressing with our work on Development, Anticorruption and Energy

The full implementation of the 2010 reforms on IMF quota and governance is a critical element for boosting the legitimacy, credibility and effectiveness of the IMF. All EU Member States have fully ratified the 2010 IMF Quota and Governance Reform, and we encourage all other IMF members to do likewise. The EU should also make clear that we are willing to work, together with the whole IMF membership, on an integrated package on the quota formula and on the General Review of Quotas by the agreed deadline of January 2014. We also support the initiative to further strengthen the cooperation between the IMF and Regional Financing Arrangements (RFAs). In Europe, we have already established strong cooperation with the IMF.

The Saint Petersburg Summit should also ensure that the good G20 work on development, anticorruption and energy matters continues. The G20 should set out the next Multi Year Action Plan on Development (MYAP), keep up its efforts to implement our food security commitments, and further strengthen the anticorruption agenda. On energy matters, it is important to make progress on phasing out fossil fuel subsidies, incorporating green growth policies in structural reform agendas, generating climate finance, improving the transparency of commodity markets, and promoting investment in energy infrastructure.

We are determined to ensure that the Saint Petersburg Summit will be another step towards the recovery of the global economy and increasing financial stability. The EU has lived up to its commitments made last year in Los Cabos to stabilise the economic situation in the euro area and to further strengthen Economic and Monetary Union. We call on all G20 members to also step up their efforts and further deepen our cooperation in order to ensure strong, sustainable and balanced growth. The EU is looking forward to constructive and cooperative discussions with our G20 partners in Saint Petersburg.